Employee Onboarding ROI: How to Calculate & Prove It
Are you all in on finding the right onboarding tech partner, but looking to build a rock-solid business case internally? You’ve come to the right place. In this article, we’ll help you calculate the ROI for your employee onboarding investment by walking through this basic formula:
ROI = (Net Benefit – Onboarding Costs) / Onboarding Costs
By the end, you’ll be armed with the numbers you need to wow you finance team and get your organization excited about enhancing the new hire experience!
Calculate Your Onboarding Costs
First, you need to understand the total cost of bringing on a new employee, including HR and hiring manager admin time, learning and development, and lost productivity before your new hire is fully ramped.
We break down all the averages in this article, but it’s essentially:
$4700 in recruitment
$1280 in training
$1400 in admin (at least)
$1500 in equipment
$1588 in productivity
That’s about $10,468 per new hire, not even accounting for revenue lost while the role is vacant.
Calculate Your Net Benefit from Improved Onboarding
The most commonly cited challenge with onboarding is early attrition. In fact, 20.5% of HR leaders in our recent onboarding survey said up to half of new hires leave in their first 90 days. When we asked, “What do you believe is the primary reason new hires leave your company within the first 90 days?” the results speak for themselves: 30.3% cited “misalignment between job expectations and reality” and 19.5% cited “lack of connection with team or company culture.”
So one of the primary net benefits of improved onboarding is reduced turnover costs. One of our customers in the financial services space was able to reduce day one dropouts by 11%, leading to 1.5M total ROI. You can use this turnover cost calculator to see how much your company could save by reducing turnover.
ROI Calculation Formula in Action
Now let’s plus it all in. Imagine this scenario:
Onboarding cost per employee: $4,000
Annual new hires: 100
Total onboarding cost: $400,000
Net benefit from improved onboarding: $600,000 (reduced turnover + saved admin time)
ROI = ($600,000 – $400,000) / $400,000 = 0.5 or 50%
That’s a 50% return on your onboarding investment — for every dollar you spend, you get $1.50 in value.
Strengthen Your Case With Supporting Metrics & KPIs to Track
Now that you have a proven formula for tracking the return on your onboarding investment, the math isn’t over! You’ll want to choose a couple of metrics that you can use as KPIs for onboarding effectiveness. Here are a few of the most commonly used metrics:
Employee Retention Rate
Why it matters: When new hires leave within their first 6-12 months, that costs you money. But if you do onboarding right, those new hires will be excited about their new role and less likely to leave. Case in point: Hugo Boss saw a 77% decrease in < 3 month attrition by implementing Enboarder for their onboarding.
How to measure: Compare the retention rates of employees who have gone through your improved onboarding program with those who haven’t.
Time to Productivity
Why it matters: Beyond giving your new hire a warm welcome, your entire onboarding program should be designed to provide them the connections and tools they need to be successful – i.e. productive – in their role. Working with Enboarder to improve employee onboarding, a major telecommunications provider saw a 15% increase in sales productivity.
How to measure: Calculate the average time it takes new hires going through your new onboarding process to reach key milestones. For sales onboarding, for example, this could be closing their first deal. Compare that to new hires who had no formal onboarding.
Employee Engagement and Satisfaction
Why it matters: Decades of research have shown engaged employees outperform their disengaged counterparts. When comparing employee engagement levels, Gallup found that the highest engaged teams improved profitability by 23% and productivity by 18%.
How to measure: Conduct employee surveys and pulse checks at various states in your onboarding process.
Turnover Costs
Why it matters: The total cost to replace an employee can range from one-half to 2x their annual salary when you take into account recruiting, training, and lost productivity costs.
How to measure: Use this turnover cost calculator to make a quick estimate. Averages are included, but if you can get these specific numbers for organization, the more accurate the estimate will be:
- Annual turnover percentage
- Number of employees
- Cost of hiring and recruiting per employee
- Cost of training and onboarding per employee
- Learning and development costs per employee
- Cost of lost productivity
Present Your ROI to Win Budget and Buy-In
HR is typically considered a cost center, but you can shift that perspective within your organization with a compelling business case:
- Use the formula in this article to calculate ROI accurately.
- Determine a goal and timeline based on that ROI.
- Introduce KPIs that will be tracked and reported on.
By showcasing the impact of your onboarding program, you’ll be seen more as a strategic partner rather than just an operational function. And even better, you’ll be more likely to secure budget for further investment in onboarding. That’s a win for you and your team, but also for your new hires who will enjoy a more engaging, connected, and productive introduction to your company.